Giving Workers Piece of the Pie Would Pay Off

One of the ironies of the remarkable turnaround at Chrysler Corp. is that the work force, which had a lock on getting a piece of the company’s rebounding profits, chose to give it up in favor of more regular pay.

United Auto Workers President Owen Bieber recalled this fact rather wistfully last month. He pointed out that if Chrysler workers still had the profit-sharing plan, negotiated when Chrysler had only losses to share and needed to cut costs, they would be getting a cool $4,600 apiece this year.

“A hell of a pile of money,” Bieber said. “You bet your boots I wish they had that now.”

What the members wanted in the 1983 round of bargaining, with Chrysler already back on its feet, was to get back some of their earlier wage concessions. Thus, they’ve been collecting most of that bonus in their regular paychecks. If they still had the bonus plan, however, they could anticipate getting even more.

The choice was by no means surprising. The long-term trend in bargaining throughout most industries has been to stress hourly pay rates and more job security. Moreover, our society in general appears to have a preference for taking risk out of annual income. Profit-sharing plans, though hardly rare, lose popularity fast in bad times.

The plus side of this is that individuals can count on what they’re going to have to spend. The minus side is that it leaves wage levels rigid in the face of both upturns and downturns in business. It leaves some of the work force to pay dearly in bad times because layoffs become the chief means of adjusting labor costs to lower sales.

In “The Share Economy,” a book published last fall, Martin L. Weitzman, professor of economics at the Massachusetts Institute of Technology, suggests that vast gains in employment and in economic growth could result from switching to a compensation system based on sharing a flat percentage of corporate profits or revenues with the labor force. Workers might, for example, be entitled to two-thirds of revenues, a figure roughly equivalent to the share an average company might put into labor costs now. Weitzman chooses revenues over profits only because, in the complex world of accounting, they’re to hard define.

All Still Would Share

By his reckoning, companies would be encouraged both to hire and to avoid layoffs because the work force would get the same overall percentage of the revenue dollar either way. As workers were added, the existing work force would have to share the wealth with that many more people. But in a full-employment economy, most people presumably would be better off, enjoying the fruits of stable economic growth.

If there were bad times, all of the workers would share the shrinking pie rather than some remaining on board at full pay while others walk the streets with none.

Another byproduct would be lower inflation. If as Weitzman predicts the sharing system produces full employment, there would be less tendency for the government to goad the economy into unnecessary growth. Capitalist societies, he observes, have become too compassionate to tolerate heavy unemployment for long, limiting their ability to control inflation.

While the nation isn’t ready for such a radical shift in its compensation system, the basic idea of taking some of the rigidity out of wages has some merit. There would have to be an adequate level of base pay to provide some security. But if a significant sum on top of that could be earned as a share of revenues or profits, it would put more incentive into the work place, incentive long recognized as important for managers but somehow not for the people on the production line.

As Weitzman points out, Japanese companies have a variation on this theme with their widespread practice of paying a share of every employee’s salary--often 25% or more--in the form of periodic profit-sharing bonuses. They also have a recent history of more stable employment.

Weitzman suggests getting the process started in the United States by offering special tax concessions to that portion of income received under a revenue-sharing contract.